All Forum Posts by: Scott Swanson

Howard, 

A 16% return is almost unheard of these days. That's extremely high! If that number is correct, I say good for you. I have a spreadsheet to calculate return and basically all you do is plug in certain numbers and it will calculate many of the other numbers and also your net profit in dollars and percent. Feel free to dm me and I'd be happy to run the numbers for you and also show you how the spreadsheet works. 

Good luck.

Daniel,

Welcome to the world of investing! You're in the right spot to learn about investing. I suggest that you start attending REIA,(Real estate investment association), meetings in your area. You can Google them. These meetings can be a valuable source for learning the business and are typically a good source to network with others in the business.

You didn't say where you want to invest. I would suggest you start locally. Long distance investing can be tricky. Even locally, you need a team. You might want to talk to the investors you already know and ask them for referrals on a good solid contractor and handyman crew. You'll need them for doing repairs and rehabbing. Also find yourself a solid property management company. Quality property management is key to your profits. 

BP has worksheets you can use to calculate the "numbers" on rentals. I don't know where you're investing, so I can't give you specific numbers, as to where your profit should be. But in Illinois and Indiana, we won't sell an investor a rental, unless it's at 9% or above. 

There's so much more to the mix, but I hope this helps. Best of luck to you. 

Eudith,

You told @Felix Z. that you're a big fan of East Chicago. IMHO, I think you have to be careful where you buy there. There's a few areas that are not good! The appreciation is not there yet, but it's coming. With all of the people migrating from Illinois, I think we'll see more appreciation in the years to come and the rents are increasing as well. The city has hundreds of properties on their list to be demolished. Many of these properties have been on the list for years. However, they're starting to demo them and building permits are being issued for new housing. If that trend continues and I think it will, East Chicago will see high rates of appreciation. I'm in the process of buying a rental there for myself. I was going to wholesale it to one of my investors, but the numbers are too good to pass up! Savvy investors will reap the rewards in the future! 

@Evelina Khaimova,

We're in the northern part, which is only about a 30 minute drive to Chicago. 

Hi Brian,

I noticed that @Jim Holub is also interested in raw land. We sell investors homes and multi units and don't deal too much with raw land. So by no means am I an expert on it! However I've dabbled in it and can give you a few pointers. I'm not sure where to specifically go for education, but I would start with your local REIA, (Real estate investors association), meetings. These are meetings where investors, wholesalers, realtor and others, usually get together once a month, in most areas of the country and discuss all types of real estate ventures. They can be an invaluable source for networking with the right people. I would Google your area and see what pops up. Obviously I have no idea how many people in your area purchase raw land, but it's a great place to start. A couple of tips for you. Raw land can take an extremely long process. You'll most likely need to pull a plat of the land from your county office. This lays out the dimensions and the details of the property. You also may need to have an updated survey completed on the property. This has to be done by a licensed company and can sometimes be expensive. You'll also want to check the zoning of the land. Your county office can provide that for you. You'll need to know if there's electric, sewer and gas on the property as well. Installing all of that can be expensive. If the zoning needs to be changed, that can be a lengthy process and also difficult. Sometimes it's simple, but it goes on a case by case basis. Let's say its raw land and you want to turn it into retail outlets or homes. The zoning will most likely need to be changed and you may need an attorney to represent you, with the city planning board, or whoever makes the decisions in your area. You'll want to check to make sure it's not in a flood zone as well. The entire process and due diligence takes time and can sometimes be very frustrating. A "competent" developer can be your best friend on these types of projects too. I'm sure others will be chiming in with more information. I hope this helps both of you and good luck.

Howard,

There's a few things you might want to consider when investing out of state. Do you have a contractor and/or handyman crew that can rehab the house for you or do any necessary repairs? Do you have someone who can get into the house, take pictures of everything and give you a "qualified" assessment about the repair costs and condition? Do you have a solid property manager to manage it? You need "boots on the ground," to help you assess the property and give you an accurate picture all the way around. @Remington Lyman mentioned having the property inspected and I would strongly suggest you do so, by a qualified company.

You mentioned good cash flow. Can you share the numbers? I'd be happy to evaluate it for you and see where it stands. We're getting investors in at the 2% rule or maybe slightly lower. It just depends upon the property and where it's located. Have you calculated the percent? 

Another market you might want to look at is Indiana, just outside of Chicago. It's a strong and reasonably priced market. Everyone seems to use a different term for return, but we use cash on cash return. You basically add up your expenses and then calculate the return based on the rental price. Indiana can bring up to a 14% return, again, depending on the property. Taxes are very low and there is quite a bit of migration from Illinois, because of taxes. Therefore, the rents have been steadily increasing. I hope this helps.

Steve,

Each cities rules and regulations are different. Probably the easiest way to find out, is by calling city hall and maybe start with the zoning department. You might get transferred to several different departments, but you should be able to get an answer. Just be thankful you're not in Cook County. You'd probably never get through!

Isaiah,

Maybe I missed it, but I didn't see anyone mention "weight." Both laminate and ceramic flooring are extremely heavy. Many of these mobile homes weren't designed to support that much weight. I would make sure that you have enough support beams underneath it, to support the weight. Sometimes on trailers that old, the beams, either steel or wood, are too far apart to support all that weight. Additional beams can be added. So be SURE to check that! Best of luck.

Katie,

I hate to be negative, but I doubt you'll see any of the $10k. That's a LOT of damage! I agree with @Nathan Gesner I would doubt she could qualify for a loan. For your sake, I hope she can. Why don't you try to go after her spouse or boyfriend as well, if he caused the damage? I wish you the best of luck, but this sounds like a very hard mountain to climb.  

Stephen,

I respectfully disagree with some of the comments. This deal does not come out to a 9% cap. You have to add in your monthly mortgage payments and obviously that dramatically lowers your profits. Dividing the purchase price by 30 units does come out to $40k per unit. However, expenses are what matters. Expenses versus total rents is basically how your profit is calculated. With the numbers you supplied, I come out with a profit of approximately $3500 per month. That's not counting any unexpected large expenditures. Profiting $3500 a month might sound like a lot, but it only comes out to about a 3.4% return. The percentage of return is what matters. Here's an example: If you were at an approximate cash on cash return of 9%, your monthly profit would jump from $3500 to $8500.  That's $5k a month, more than what you will be getting on the deal you presented. That's the "dollar" difference between a 3% and 9% return. That equates to the rents of approximately $850 a unit. I still stand by my statement that this is not a good deal. Remember too, you will rehab and maintenance costs. The total maintenance costs you quoted, comes out to only $41 per unit, per month. If a couple of tenants move and you have to paint the units and do some other minor repairs, you're only alloting yourself $500 for ALL repairs per year. Painting just 1 unit would cost well over $500. However, when I calculated the numbers, I left the maintenance costs where you had them. So if you raise the maintenance costs per unit, your return obviously drops even more. You also said the building was old. What kind of condition are the furnace's in? The hot water heaters? What if the plumbing goes bad? What if doors need to be replaced? What if the roof needs replacing? Allotting $41 per unit per month, on an old building, seems to be very low. One furnace replacement could easily run $2000 to $4k. Just one furnace going bad and having to paint one unit, could easily eat your profits up for an entire month. Remember too, you have 30 units! A licensed inspector can give you a good idea of what the issues are with the building and each unit. But repairs can eat your profits in a heartbeat! My goal here, is to give you the "entire" picture. Obviously it's your decision whether or not you purchase the building. Be SURE to no allow your emotions get in the way!  When your dollar and percentage of profits are low, this is exactly how investors get burned. I hope this makes sense. Best of luck to you.